Sale Of Vintage Car Not Exempt From Capital Gains Tax Without Proof Of Personal Use: Bombay High Court

A Division Bench of Chief Justice Alok Aradhe and Justice Sandeep Marne held, “…capability of a car for personal use would not ipso facto lead to automatic presumption that every car would be personal effects for being excluded from capital assets of the Assessee.”

The Bench upheld the decision of the Income Tax Appellate Tribunal (ITAT), which had restored an addition of ₹20.8 lakh to the taxpayer’s income under the head of capital gains.

Background

The appellant a salaried employee, had purchased a 1931 Ford Tourer vintage car in 1983 for ₹20,000 and sold it in 1992 for ₹21 lakh. He did not report the capital gains in his income tax return, claiming that the vintage car was a "personal effect" and thus exempt under Section 2(14) of the Income Tax Act, which excludes personal effects from the definition of capital assets.

However, in 1994, the Assessing Officer rejected his contention and treated the entire profit as taxable business income, adding ₹20.8 lakh to his total income.

While the Commissioner of Income Tax (Appeals) partly accepted the taxpayer’s position—acknowledging that the car was declared in wealth tax returns and had not been depreciated—the ITAT overturned this, ruling that there was no concrete evidence that the car had been used for personal purposes. He subsequently challenged this finding before the High Court.

The petitioner argued that the Income Tax Department had previously treated the car as a personal asset in earlier proceedings. They also contended that personal withdrawals recorded in his financials reflected expenses related to the car's upkeep and that it had not been used for commercial purposes.

Findings

The High Court agreed with the ITAT's reasoning and laid down a clear interpretation of what constitutes a "personal effect" under the tax law. The Bench emphasized that ownership alone does not qualify an asset as a personal effect, it must be intimately and commonly used by the individual in their daily life.

The Court found these assertions unsubstantiated. Referring to the findings of the ITAT, the Bench noted several key facts that the car was not parked at his residence, indicating limited or no personal access. There was no documentation or evidence to show repairs, maintenance, or running costs. The assessee had access to a company-provided car, which he regularly used.The vehicle was not shown to be used regularly or in any manner indicating intimate personal use.

The Court also took note of the ITAT’s observation that the vintage car was purchased out of pride, a sentiment that, while understandable, does not meet the threshold of “personal use” required under tax law.

"One of the plea taken by the assessee that assessee had purchased the car as a pride of possession. It may have been kept as a matter of pride but it is difficult to understand how such user can be characterized as a 'personal use'. The 'personal use' which is contemplated by the exemption is not a pride of possession,” the ITAT had noted, a view the High Court endorsed.

The Bombay High Court ultimately held that mere ownership or aesthetic value of a vintage item is not sufficient to claim exemption from capital gains tax under the guise of personal effects. Since he failed to produce any credible evidence of actual, regular personal use, the Court dismissed his appeal and upheld the tax authorities' decision to treat the proceeds from the car sale as taxable capital gains.

Cause Title: Narendra Bhuva v. Assistant Commissioner of Income Tax, [2025:BHC-OS:13706-DB]

Appearance:

Petitioner: Advocates Vipul Joshi and Prashant Ghumare, instructed by Namrata S Kasale

Respondent: Advocates Prakash Chhotaray and Sangita Choure

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